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Income Tax Appellate Tribunal, I BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
By way of the present appeal the Revenue has challenged the order, dated 17.08.2021, passed by the Learned Commissioner of Income Tax (Appeals)-58, Mumbai, [hereinafter referred to as ‗the CIT(A)‘] for the Assessment Year 2015-16, whereby the CIT(A) had allowed the appeal filed by the Assessee against the Assessment Order, dated 11.01.2018, passed under Section Assessment Year: 2015-16
144C(3) read with Section 143(3) of the Act (hereinafter referred to as ‗the Act‘).
The Revenue has raised following grounds of appeal:
―1. Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in giving the benefit under Article 8 of the India-UAE DTAA without considering the provisions of the section 90(4) of the Income Tax Act, 1961. 2. Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in giving the considering the facts that the 100% DIT relief certificate which was issued a provisional certificate subject to the final assessment.‖
Brief facts of the case are that the Assessee, a shipping company based in Dubai, United Arab Emirates (UAE), filed return of income on 29.03.2016 declaring shipping freight income of INR 1,55,96,110/- which was claimed to be exempt from tax in India in terms of Agreement For Avoidance of Double Taxation And Prevention of Fiscal Evasion between India and UAE (hereinafter referred to as ‗Tax Treaty‘). The case of the Assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noticed that the Assessee had claimed tax relief of INR.65,54,109/- in terms of the Tax Treaty. However, the Tax Residency Certificate (TRC) furnished by the Assessee was for the period commencing on 31.12.2015 and ending on 30.12.2016. Since the Assessee did not hold a valid TRC for the relevant previous year, the relief claimed by the Assessee under the provisions of Tax Treaty was rejected and shipping freight income of INR 1,55,96,110/- was brought to tax in the hands of the Assessee vide 2 Assessment Year: 2015-16
assessment order dated 11.01.2018, passed under Section 144C(3) read with Section 143(3) of the Act
Being aggrieved, the Assessee carried this issue before CIT(A). The CIT(A) allowed the appeal of the Assessee taking into consideration the following: (a) the Assessee was in the first year of its operation and could apply for TRC in UAE only on completion of one year from the date of its formation, (b) the TRC for the calendar year 2015 furnished by the Assessee covered the part of the relevant previous year, and (c) the Deputy Director Income Tax- (International Tax)-2(2) [hereinafter referred to as ‗DDIT‘] had issued 100% tax relief certificate to the Assessee.
Being aggrieved, the Revenue is in appeal before us.
The Ld. Departmental Representative submitted that the Ld. CIT(A) has erred in giving the benefit under Article 8 of the India-UAE DTAA without considering the provisions of the of the section 90(4) of the Act. The TRC furnished by the Assessee covered only part of the relevant previous year. Since the Assessee did not hold a valid TRC for the relevant previous year, the Assessing Officer was justified in not granting the tax relief sought by the Assessee under the provisions of Tax Treaty. On the other hand, the Ld. Authorised Representative for the Assessee reiterated the submissions made before the CIT(A). He submitted that during the assessment proceedings, the Assessee had submitted the Certificate of Formation showing that the Assessee was found on 24.04.2014. Since TRC could be issued only after one year, the Assessee was not issued TRC for the calendar year 2014 being the year of 3 Assessment Year: 2015-16
formation. The TRC for the calendar year 2015 and the subsequent calendar years were furnished during the assessment proceedings. The TRC for calendar year 2015 covered a part of relevant previous year. However, due to the non-availably of TRC covering the entire period of 12 months of the relevant previous year, the Assessing Officer denied the Tax Treaty benefit and brought to tax entire shipping freight income in India. Ld. Authorised Representative for the Assessee submitted that the Assessee was operational since its formation on 24.04.2014. The DDIT had issued 100% tax relief certificate to the Assessee for the relevant previous year. Taking into consideration all the aforesaid factors, the CIT(A) had accepted the claim of the Assessee. He vehemently contended that the order passed by the CIT(A) be confirmed.
We have heard the rival contention and perused the material on record including the judicial precedents cited during the course of hearing. During the appellate proceedings before CIT(A), the Assessee supported the claim of being tax resident of UAE during the relevant previous year by submitting certificate of formation establishing 24.04.2014 as the date of formation, the TRC for the Calendar Year 2015 (which covered almost last three months of the relevant previous year) and the 100% DIT relief certificate issued by the DDIT. The CIT(A) accepted the contention of the Assessee that the Assessee could not have applied for TRC for calendar year 2014 being the year of formation which included first 9 months of the relevant previous year. Nothing has been placed before us to controvert the aforesaid contentions made by the Assessee and accepted by the CIT(A). The Revenue has not 4 Assessment Year: 2015-16
disputed tax residential status of the Assessee on account of business operations, and/or control & management in assessment or appellate proceedings. The limited contention of the Revenue is that the Assessee did not hold a valid TRC and therefore, could not be granted Tax Treaty benefit. In this regard, the Learned Departmental Representative placed reliance on the provisions of Section 90(4) of the Act which reads as under: ―Section 90 (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India, xx xx (4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.‖
We note that the Ahmadabad Bench of the Tribunal had, in the case of Skaps Industries India Pvt. Ltd. Vs. ITO, International Taxation, Ahmadabad: [2018] 171 ITD 723 (Ahmedabad - Trib.)[21-06-2018] held that the failure on the part of the Assessee to submit a TRC as required by Section 90(4) of the Act is not a bar to the grant of tax treaty benefit. It only shifts the onus on the assessee to produce reasonable evidence of the entitlement of tax treaty benefit. The relevant extract of the decision of the Tribunal rendered while examining eligibility of an assessee to claim benefit of Indo-US Tax Treaty reads as under: ―8. In the light of our this analysis, when we turn to Section 90(4), as indeed other sub-sections of Section 90, we find that 5 Assessment Year: 2015-16
these provisions do not start with a obstante clause vis-a-vis Section 90(2) and, therefore, these sub-sections cannot be construed as limitation to, or rider to, somewhat unqualified treaty override stipulated in Section 90(2). Whatever interpretation one assigns to this sub-section, essentially the fundamental approach has to be that this sub-section will be applicable only when the same are more beneficial to the assessee vis-a-vis the provisions of the applicable tax treaty; that principle of treaty override, as set out in Section 90(2), remains unaffected by these provisions. As we hold so, we make it clear that whether the same position will also apply with respect to Explanations to Section 90 or not is still an open question, uninfluenced by these discussions, as Explanations to Section 90 may perhaps not have the same legal connotations as the sub-sections to Section 90. We leave it that for the time being.
Whatever may have been the intention of the lawmakers and whatever the words employed in Section 90(4) may prima facie suggest, the ground reality is that as the things stand now, this provision cannot be construed as a limitation to the superiority of treaty over the domestic law. It can only be pressed into service as a provision beneficial to the assessee. The manner in which it can be construed as a beneficial provision to the assessee is that once this provision is complied with in the sense that the assessee furnishes the tax residency certificate in the prescribed format, the Assessing Officer is denuded of the powers to requisition further details in support of the claim of the assessee for the related treaty benefits. Approving this approach, Hon'ble Punjab & Haryana High Court, in the case of Serco BPO (P.) Ltd. v. Authority for Advance Ruling [2015] 379 ITR 256/234 Taxman 630/60 taxmann.com 433, has observed as follows:
(Learned counsel's) reliance in this regard upon the proposed amendment to section 90 of the Act is well founded. It sets at rest the doubt, if any, in this regard. (A) Section 90(4) of the Act as is stood at the relevant time i.e. in respect of the assessment year 2010-11 reads as under:—
6 Assessment Year: 2015-16
"90 (4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless [a certificate of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory." (B) The Finance Bill, 2013 as introduced in the Lok Sabha on 28.02.2013 was to give effect to the financial proposals of the Central Government for the financial year 2013- 14. Clause 21 of the bill proposed the following amendment:— "
In section 90 of the Income Tax Act,— (a) to (b)** (c) after sub-section (4) and before Explanation 1, the following sub-section shall be inserted, namely:— (5) The certificate of being a resident in a country outside India or specified territory outside India, as the case may be, referred to in sub-section (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein." The proposed sub-section (5) was not implemented. Parliament was obviously, therefore, conscious of the Circular No. 789 of 2000 and the effect thereof, namely, that the certificate of Residence issued by the Mauritian authorities would constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for applying the DTAC accordingly. Though an amendment in the Finance Bill was proposed which would affect the circular, the same was never implemented. (C) The reason for Parliament not implementing the amendment is also evident from the clarification dated 01.03.2013 issued by the Finance Ministry specifically regarding Tax Residency Certificates. It is necessary to set out the entire circular as it is of vital importance. It establishes beyond doubt now that the Circular No. 789 was in full force and ought to have been given effect to. The circular reads as under:—
7 Assessment Year: 2015-16
"Finance Ministry Clarification Regarding Tax Residency Certificate (TRC) March 2, 2013 Concern has been expressed regarding the clause in the Finance Bill that amends section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of section 90 was introduced last year by Finance Act, 2012. That sub-section requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA. DTAAs recognize different kinds of income. The DTAAs stipulate that a resident of a contracting state will be entitled to the benefits of the DTAA. In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA. The same words are proposed to be introduced in the Income-tax Act as sub-section (5) of section 90. Hence, it will be clear that nothing new has been done this year which was not there already last year. However, it has been pointed out that the language of the proposed sub-section (5) of section 90 could mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The government wishes to make it clear that that is not the intention of the proposed sub-section (5) of section 90. The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status. In the case of Mauritius, circular no. 789 dated 13.4.2000 continues to be in force, pending ongoing discussions between India and Mauritius. However, since a concern has been expressed about the language of sub-section (5) of section 90, this concern will be addressed suitably when the Finance Bill is taken up for consideration." (Emphasis supplied)
8 Assessment Year: 2015-16
Sub-section (4) merely requires a certificate of being resident. The newly added sub-section (5) requires the person to also provide such other documents and information as may be prescribed. Nothing has been prescribed to date.
The entire sequence of events namely the Finance Bill, 2013, the clarification issued by the Finance Ministry regarding the Tax Residency Certificate dated 01.03.2013 and the Finance Act, 2013 establish beyond doubt that the Residence Certificate issued by the Mauritius authorities must be accepted provided of course it is established that it has been issued by the appropriate Mauritius Authorities. As we mentioned earlier it is not disputed that the Residence Certificate relied upon by Blackstone Mauritius and Barclays were issued by the Mauritius authorities. [Emphasis, by underlining, supplied by us]
The judicial approval was, therefore, to the use of Section 90(4) in favour of the assessee in the manner set out above. In view of the provisions of Section 90(2), there cannot be any controversy on this aspect. That is qualitatively much different from the stand of the CIT(A) called into question before us. Our research did not indicate any judicial precedent which has approved the interpretation in the manner sought to be canvassed before us i.e. Section 90(4) being treated as a limitation to the treaty superiority contemplated under section 90(2), and that issue is an open issue as on now. In the light of this position, and in the light of our foregoing analysis which leads us to the conclusion that Section 90(4), in the absence of a non-obstante clause, cannot be read as a limitation to the treaty superiority under Section 90(2), we are of the considered view that an eligible assessee cannot be declined the treaty protection under section 90(2) on the ground that the said assessee has not been able to furnish a Tax Residency Certificate in the prescribed form. To this extent, the approach of learned CIT(A) is clearly erroneous xx xx
Article 4(1) thus provides that, as a preliminary requirement and in order to be treated as 'resident of a contracting state', a taxpayer has to demonstrate that he is liable to tax in that 9 Assessment Year: 2015-16
juri iction by the reason of domicile, residence, citizenship, place of management, place of incorporation or any other criterion of similar nature. The residuary clause i.e. "any other criterion of similar nature", as has been judicially noted in the case of Dy. CIT v. General Electric Co plc [2001] 119 Taxman 137 (Cal)(Mag), should be understood to "mean any locality- related attachment that attracts residence-type taxation". Unless it is established that the assessee is able to satisfy the above preliminary requirement for being treated as resident of a contracting state (i.e. USA in this case), the assessee cannot be held to be entitled for the treaty protection in the other contracting state (i.e. India in this case). As an additional requirement under Article 4(1)(a), definition of the expression 'resident of contracting state' "does not include any person who is liable to tax in that State in respect only of income from sources in that State". In other words, the taxability in USA has to be not only of the income sourced in the United States, but the global income of the assessee. The onus is on the assessee to give sufficient and reasonable evidence of satisfying the requirements of Article 4(1)- particularly when the same is called into question. These requirements are far more onerous than furnishing of TRC; the latter would have been a much simpler a course of action. Be that as it may, there is no, and there cannot be, any escape from substantiating the status of the US entity as a person resident of the United States, in terms of Article 4(1) of the Indo US tax treaty, in order to claim the benefits of the said tax treaty. Let us, in this light, turn to the evidence, in support of his eligibility for Indo US tax treaty protection, furnished by the US entity. So far as the assessment stage is concerned, the assessee applicant did not furnish any evidence in support of the treaty entitlements of the US entity but then, in all fairness, the Assessing Officer did not doubt the treaty entitlements either. Therefore, once we hold that Section 90(4) does not act as a bar for treaty entitlement in the sense it can not be seen as a limitation of superiority of treaty provisions vis-a-vis the domestic law provisions, as we have indeed held earlier this order, the mere non-furnishing of TRC cannot per se be treated as a trigger to disentitlement to the treaty benefits. At the first appellate stage, however, learned
10 Assessment Year: 2015-16
CIT(A) did specifically ask for the TRC and all that the assessee furnished was a form W 9 which is meant for use in the context of domestic tax withholding requirements in the United States. It has been rejected for the reason that it was issued on 9th October 2017 and it does not disclose the residential status of the US entity in the relevant period. However, we have noted that the assessee was asked, for the first time, to file TRC on 11th December 2017 and there was hardly enough time between this date of requisition and the date of passing the impugned order, i.e. 22nd January 2018, so as to give an effective opportunity to the assessee to comply with this requisition. Whether the conduct of the assessee, therefore, can be faulted or not, the requirements for establishing treaty entitlements under article 4(1) are to be satisfied established nevertheless. Let us, therefore, examine whether form W9, as submitted by the assessee, can lead us to the conclusion that the conditions laid down in Article 4(1) are satisfied.‖ (Emphasis Supplied)
As discussed hereinabove, the Assessee has discharged the onus by producing evidence of the entitlement of Tax Treaty benefits in the appellate proceedings before CIT(A). The CIT(A) has accepted evidence furnished by the Assessee to establish that the Assessee was tax resident of UAE during the relevant previous year. After placing reliance on the above decision of the Tribunal, the CIT(A) has concluded that the Assessee was tax resident of UAE and thus, entitled to benefit of Article 8 of the Tax Treaty. We find no reason to overturn the findings returned by CIT(A) in absence of any material on record to challenge the veracity of the evidence produced by the Assessee and/or the conclusion drawn by the CIT(A) in this regard. Admittedly, the DDIT has issued 100% DIT relief certificates granting benefit of Article 8 of the Tax Treaty to the Assessee for the relevant previous year. TRC for the subsequent assessment years were also filed before CIT(A). 11 Assessment Year: 2015-16
Keeping in view, the legal position and the overall facts and circumstances of the case stated hereinabove, we do not find any infirmity in the order passed by the CIT(A). Ground No. 1 and 2 raised by the Revenue in the present appeal are dismissed.
In result, the present appeal preferred by the Revenue is dismissed.
Order pronounced on 26.10.2022. (Om Prakash Kant) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 26.10.2022 Alindra, PS
12 Assessment Year: 2015-16
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.